Investing Topics: Regulated Utilities

The recent spate of equity issuance is yet another sign of frothy valuations in the utility sector, but these moves set the stage for future growth. Investors should bide their time and wait for a pullback to buy our favorite utility stocks.

We share our take on the latest deal flow involving companies in our Utility Report Card, the first earnings of the season and hedging against potential downside in utility stocks.

We review the recent mergers and acquisitions news in our coverage universe, including a flurry of deal closures and the sale of the former TXU Corp, now called Oncor.

We review our investment strategy in light of our macro outlook and key takeaways from first-quarter earnings.

A transformative acquisition lands this former Aggressive Income Portfolio holding in the Conservative Income Portfolio.

Utility stocks offer exposure to underappreciated growth drivers.

We examine the latest mergers and acquisitions, including a rumored deal that makes a world of sense for both parties and a takeover that may or may not make it to the finish line.

Investors usually buy utility stocks for their resilient underlying businesses and generous dividend yields—qualities that become even more appealing during times of economic uncertainty and market volatility. But some of our favorite, best-in-class names offer exposure to compelling growth stories that could drive significant outperformance in coming years.

SolarCity Corp continues to lose more money with each incremental sale. Meanwhile, electric utilities can leverage their low cost of capital, existing customer relationships and ability to recover capital expenditures in rate base to spur adoption of renewable energy.

For the 39th time since 1969, the Dow Jones Utilities Average rallied in the fourth quarter. But this upside didn’t prevent the benchmark from finishing the year with a 3.1 percent loss, the index’s first negative return after a positive January since 1987. Fortunately, the primary catalyst for the loss—uncertainty about when the Federal Reserve would start raising interest rates—no longer exists. And just like the beginning of the 2004-06 tightening cycle, utility stocks have gained ground despite weakness in the broader market. But last year’s challenges remain in play for 2016. Energy prices have yet to find a bottom. Non-investment grade debt has become crushingly expensive to refinance, tightening capital markets for all but the strongest companies. Emerging markets continue to struggle. And any international currency not pegged to the US dollar find itself under pressure. The Quality Grades for the 214 essential-service companies tracked in our Utility Report Card provide insight into the spectrum of risk and help investors to avoid the riskiest names.